The Florida Consumer Collection Practices Act (“FCCPA”) prohibits anyone attempting to collect a debt from using certain types of abusive, deceptive, and misleading tactics. In a recent decision, Florida’s Second District Court of Appeals ruled that the FCCPA applies not just to “debt collectors” but also to banks that send demand letters to borrowers whose loans are in default.
In Gann v. BAC Homes Loan Services, LP, a bank agreed to permanently modify a loan. The borrower then timely made payments in accordance with the modification agreement. However, the bank sent the borrower a letter which claimed that she was in default under the original terms of the loan. The bank threatened to foreclose its mortgage unless the borrower paid the amount which the bank claimed she owed. In response, the borrower sued the bank for violating the FCCPA by ignoring the terms of the loan modification and attempting to enforce an illegitimate debt.
The bank argued that the letter it sent was merely an attempt to enforce the mortgage, rather than an attempt to collect on the underlying consumer debt. The trial court accepted this argument and granted the bank’s motion to dismiss the borrower’s FCCPA claim. However, the appeals court rejected this position because the plain language of the letter demanded payment of the debt in addition to threatening foreclosure. Also, while the federal Fair Debt Collection Practices Act does not apply to original creditors, the FCCPA applies to original creditors as well as debt collectors. As a result, the bank now faces renewed litigation about whether it violated the FCCPA.
This decision highlights the need for financial institutions in Florida to ensure that their loan accounting systems accurately track the terms of loan modifications, forbearance agreements, and other loan documents. Since banks routinely send correspondence to borrowers who default on their loans, a bank may expose itself to lender liability claims under the FCCPA if its correspondence fails to account for loan modifications.